By eliminating local tax free-riding, fiscal centralization should have increased the ability of national governments to collect greater revenues. Since rulers retained control over state expenditures, however, the consolidation of fiscal powers may have exacerbated problems of executive discretion. Spending constraints were thus necessary.

This chapter examines the second fundamental political transformation that European states underwent, from absolutism to limited government, which restricted the ways in which rulers could use public funds. It begins by characterizing the problem of unconstrained absolutism. It then describes the coding process for political change and identifies the dates for constitutional reform across sample countries.